Wall Street Breakfast: Tobacco M&A, Muni Outflows, Google Glass Telekinesis

by: Wall Street Breakfast
Wall Street Breakfast
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U.S. municipal bond funds had some of the biggest outflows since January after investors pulled out $790M in the week ending July 9. $691M of the outflows were in the high-yield sector, being withdrawn due to default concerns of Puerto Rican debt. Adding to the worries is Puerto Rico's newest law which allows for public corporations to restructure their debt. Barclays High Yield Municipal Bond Index, up more than 9.5% in mid-June, was up less than 5.5% this past Wednesday.

The Ukrainian army is preparing its invasion of Donetsk, the pro-Russian separatist stronghold and city of nearly 1M. Rebel leaders are urging residents to evacuate the city and have vowed to never surrender. Separatists have continued to call on Russia for aid, although their eastern neighbor has not yet offered any direct military assistance. While it openly condemns Ukraine's military crackdown, Russia faces heavy economic sanctions should it intervene.

Argentina will enter its next round of negotiations with holdout investors today, but instead of sending Economy Minister Axel Kicillof this time around, the country will send a team of technocrats. The move marks a new change in strategy for Argentina, which is desperate to prevent its second default since 2002. The country claims paying the hedge funds in full will initiate additional claims for more than $100B, a concern for Argentina which only has $29.5B in reserves.

Reynolds American may announce its purchase of Lorillard (NYSE:LO) as early as July 14, Bloomberg reports. Many rumors have been circulating in the past few weeks regarding big tobacco M&A, as shrinking U.S. demand for cigarettes puts pressure on companies to team up. Under the current deal, Reynolds (NYSE:RAI) would acquire most of Lorillard, with some brands being acquired by Imperial Tobacco (ITYBY), to receive regulatory approval.

After suffering a decline in sales and popularity over the past decade, Unilever (NYSE:UL) has sold its Slim-Fast brand to private-equity firm Kainos Capital. The company acquired Slim-Fast for $2.3B in 2000. The financial terms for the sale weren't disclosed, however Unilever will still retain a minority stake in the business. The conglomerate is slowly stepping away from its core foods portfolio, and also sold its Ragu and Bertolli pasta-sauce business for $2.2B last month.

A group in London called "The Place" has launched an app called MindRDR which allows Google (GOOG, GOOGL) Glass wearers to take a picture of what they are looking at by reading brainwaves. The new app works via a bio-sensor attached to Glass, and picks up brainwaves that correlate to "focusing". If a user strongly focuses on an item while connected to the hardware, a snapshot will be taken.

Following a Bloomberg report yesterday that stated the A330neo will be unveiled at the Farnborough Air Show in the U.K. next week, Airbus (OTCPK:EADSF) has announced its new wide-body jet will be 14% more fuel efficient due to new winglets and larger Rolls-Royce (OTC:RRCEF) engines. The A330neo will also be able to carry more passengers and fly farther. Airbus is banking on an A330neo lower price tag compared to Boeing's 787 to gain increased market share.

Banco Espirito Santo believes its capital buffers will protect it from any losses incurred by exposure to its parent group. The statement was announced to quell concerns from investors and the market after a rocky last few days, which led to the trading suspension of both Banco Espirito Santo and Espirito Santo Financial Group (OTC:ESFHF). Banco Espirito Santo's market value has almost halved since May.

Blackstone will buy Lombard International Assurance, a wealth management firm, and Insurance Development Holdings from the Friends Life Group (OTC:RSLLF) for €449M. Upon the completion of the transaction, a buy-back program will commence returning €329M to shareholders. The Blackstone (NYSE:BX) deal is still pending anti-trust and regulatory approval but is expected to be completed in the second half of 2014.

Energy Transfer Partners is seeking to build an 1,100-mile pipeline to transport Bakken crude oil from North Dakota diagonally through Iowa en route to Patoka, Illinois. The project still faces approval from Iowa regulators and from regulatory agencies in other states, but Iowa environmental groups say they were caught off guard by Energy Transfer Partners' (NYSE:ETP) plans. The 320K bbl/day pipeline is scheduled to begin operations by the end of 2016.

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Today's Markets:
In Asia, Japan -0.3% to 15164. Hong Kong flat at 23233. China +0.4% to 2047. India -1.4% to 25024.
In Europe, at midday, London +0.2%. Paris +0.6%. Frankfurt +0.2%.
Futures at 6:20: Dow +0.2%. S&P +0.2%. Nasdaq +0.2%. Crude -0.3% to $102.59. Gold -0.1% to $1337.80.
Ten-year Treasury Yield -2 bps to 2.52%

Today's economic calendar:
2:00 PM Treasury Budget

Notable earnings before today's open: FAST, INFY, WFC

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